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Everything you need to know about Chapter 13 bankruptcy

Debt is a burden. One that many Americans manage daily. From credit card debt to mortgages to student loans and failing businesses, debt can pile up. What can also be scary, is not knowing how to free yourself from debt and start fresh.

One choice is to file for Chapter 13 bankruptcy, which restructures your debt into a more manageable three to five-year repayment plan, but there are certain benchmarks you must hit to qualify. If you have steady income and don’t want to give up your assets or property, Chapter 13 would be the route to consider.

Are you eligible?

To qualify, you must be receiving a steady income. A general rule to follow is that if your income exceeds the median income of the state you live in, your repayment plan will last five years. If your income is lower than the median level, you will repay your debts in a three-year time frame.

In addition to a steady income, there are other stipulations tied to Chapter 13.

  • Providing documents that show up-to-date tax returns and tax payment information
  • Unsecured debts, which include credit card and personal loan debt, can’t exceed $394,725
  • Secured debts, like a car/boat loan or a mortgage, can’t exceed $1,184,200
  • You aren’t likely to qualify for Chapter 13 if bankruptcy court dismissed your bankruptcy due to your failure to appear or comply within 180 days

When it comes to discharging your repayment plan, this can only happen if you received a Chapter 13 discharge within the past two years or a chapter 7, 11, or 12 bankruptcy discharge within the past four years. To be approved, you must complete credit counseling within 180 days before you file. The filing process on average, takes 95 days from filing to final approval and will cost the filer $235 to file and a $75 administrative fee.

The process

These 10 steps describe the process to follow if you choose to file Chapter 13 bankruptcy.

  1. Complete credit counseling
  2. Prepare your paperwork; including: a list of your debt amounts and associated creditors, evidence of a steady income, a list of your assets and property, your most recent tax return, a list of your living expenses and the certification sheet showing you completed credit counseling.   An attorney can assist you with this step.
  3. File for Chapter 13. This step is where the above fees apply.
  4. Submit your proposed repayment plan.
  5. Begin paying off your debts using your repayment plan. Do this even if the court hasn’t approved it yet.
  6. The court appointed trustee will now review the case and discuss your debts with creditors.
  7. You will have a meeting with your trustee and creditors to answer questions under oath and discuss your debts and repayment plan. This step will happen between 21 and 50 days after you file.
  8. Within 45 days after your credit meeting, you’ll attend a confirmation hearing, where the judge will decide whether or not to grant your plan.
  9. You will pay the debts linked to your repayment plan through the trustee, who will collect your payments and provide them to the creditors.
  10. The court will grant a bankruptcy discharge once your repayment plan has reached the length of its term and you have met and followed all requirements during that three to five-year span.

Chapter 13 will show on your report for seven years and will severely impact your score, but often, most or all debt is repaid through Chapter 13, which looks better on your credit report over time.

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